Bankruptcy Lawyer Indiana

Chapter 11 is the business reorganization section of the Bankruptcy Code.  Sometimes Chapter 11 must be applied to an ailing business so that it can continue operations while reorganizing.  Other times, alternatives to Chapter 11 may be applied that are less expensive and yet just as effective to reorganize a business.

Since last year, the housing bubble burst. The Dow fell over 6,500 points. The commercial credit markets rendered borrowing almost impossible. Lenders, who once competed over loans, are now declining everyone except for the most creditworthy borrowers. Consumers are starting to save, just when the government needs them to spend. As cash becomes scarce and loans become due, businesses need to assess their options.

Chapter 11 is still the first option that most decision-makers think of when grappling with an insolvency situation in their business. Still, that is appropriate. Bankruptcy offers features that are unavailable anywhere else. Under Chapter 11, debtors are afforded the automatic stay, the ability to reject burdensome contracts, and the power to impose a plan that most constituents agree upon and bind holdouts to the deal. These are powerful tools and bankruptcy is often the best, if not the only viable, option for some companies. But bankruptcy should not be the only option that businesses consider. The market for debtor in possession (“DIP”) financing has become scarce. Even when DIP financing is available, its pricing has increased and the usual term of the loan has been shortened.

If a company does not need the tools tafforded under the bankruptcy laws, there may be faster, less expensive, ways to reorganize or liquidate. This is especially true for smaller businesses.

For businesses that need to reorganize while continuing their operations, a composition may be attractive. A composition is simply an agreement between a company and its creditors to restructure the company’s debt. If it can be achieved, it can be quick, quiet, and less expensive than Chapter 11. The main obstacle to a composition’s success is the holdout. If one or more creditors refuse to compromise their claims, a composition does not offer a way to compel them to accept it. Everyone else takes a haircut, while the holdout keeps its full claim and reaps the benefit of an improved balance sheet for its borrower. Of course, that doesn’t sound fair. Well, compositions work only in situations where few creditors hold the majority of the company’s debt.

Shareholders and/or management who need to liquidate a company and provide a cost effective way for creditors to get the proceeds of liquidation have at least two non-bankruptcy options. First, the company’s management can oversee the company’s own liquidation subject to relevant state corporations law and “Going out of Business” statutes, if relevant. Second, they can use an assignment for the benefit of creditors (“ABC”), if the company is located in a state that offers an acceptable ABC process.

Under an ABC, the company chooses an assignee and conveys its assets to the person or entity to conduct that liquidation. Indiana boasts a favorable ABC statute but, interestingly, it is little used by insolvency lawyers. It’s one of Indiana’s best kept secrets!

Once the assignment is perfected, the assignee, not the company or its officers, directors, or shareholders, is responsible for the unpleasant tasks that accompany liquidation, like telling creditors that they will not be paid in full. It does allow, however, the company to choose its liquidator.

In contrast, in bankruptcy court, a trustee or a creditors’ committee is often perceived as always looking for someone to sue, to place blame for a corporate failure. And, while an assignee also has a duty to investigate potential causes of action, assignees are less likely to bring speculative suits viewed more as shakedowns than anything else.

Creditors of a company that undertakes an ABC are often satisfied that a third party is overseeing the liquidation. Moreover, the creditors will enjoy a larger recovery than would be otherwise available in a bankruptcy because of an ABC’s significantly reduced costs, including reduced professional fees.

ABC laws vary from state to state, and in some states an ABC is not a viable option. Many practitioners are unfamiliar with the process. I’ve served many times both as an assignee in an ABC and as bankruptcy trustee so this firm has ample experience in both of these types of proceedings. Where they fit, ABC’s offer significant advantages over bankruptcy.

While many situations, especially those involving companies with public securities, large numbers of executory contracts or unexpired leases, assets in multiple states, or union, pension, or mass tort liabilities require the supervision of a bankruptcy judge under Chapter 11, many other situations do not. You should understand all available alternatives before choosing the right one for your company’s situation.

Often, the first thing a prospective client says in a client meeting is that “I don’t want to be here and filing for bankruptcy relief is the last thing I ever wanted to do.” I’m sympathetic always. My response is usually words to the effect : “Yet, here you are so let’s analyze the problem.”

Depite the fact that a client may have little or no equity in his home (if he owns one), and despite the fact that the client does not have any assets that can be marshalled by a trustee in bankruptcy, the client still has a negative opinion about the word “bankruptcy.”

What I usually say is that bankruptcy makes more sense than decimating retirement accounts and depleting other assets otherwise protected under the bankruptcy laws. The federal bankruptcy laws enacted by Congress are uniform throughout the United States. Consequently, wherever you exercise your rights under the laws, the same statute applies subject to certain state law exemptions.

Unfortunately, when people are in real trouble, they often wait too long to get the relief they need. Bankruptcy is designed to afford folks with a fresh start when no other reasonable alternative exists.

Discharging debts and moving on with your life is often the smartest move a burdened consumer can choose. To those who qualify, Chapter 7 relief discharges most debts. A Chapter 7 discharge generally discharges credit card debts, medical bills, personal loans, and other unsecured debts.

For those who need to stop a foreclosure proceeding or sheriff’s sale, Chapter 13 enables the consumer to pay some or all of his debts through a payment plan but still being afforded protection under the automatic stay provisions of the Code.

Some prospective clients say they need to avoid bankruptcy because they think they have perfect credit. These folks, respectfully, are usually fooling themselves. When one has overwhelming debt, one’s credit isn’t perfect at all. In fact, one may be making timely minimum monthly payments on credit card and other debts, but I explain, if one now applies to a lender for additional loans, one’s application will be rejected based upon the amount of the prospective borrower’s existing debt compared to his income.

The first step to moving towards a debt free future is meeting with an experienced bankruptcy attorney. Our offices provide free, confidential consultations.